Emmis Communications Corp.’s tactics as it plotted to strip preferred shareholders of their rights were “admittedly
unusual,” Judge Sarah Evans Barker acknowledged in her Aug. 31 ruling that let the company go forward with a shareholder
vote a few days later that did just that.

But if a company was going to press the limits of normal business conduct, Indiana was the right place to do it. That’s
because the Indiana Business Corporation Law — enacted in the mid-1980s to help Hoosier companies fight off a wave of
attacks by corporate raiders — gives boards of directors unusually broad authority to exercise judgment as they see
fit.

As Emmis wrote in a court filing defending its conduct, “Plaintiffs’ argument that they are entitled to a different
substantive outcome because they dislike the result dictated by unambiguous statutory and contractual language is a plea properly
directed to Indiana’s General Assembly, not this court.”

Corre Opportunities Fund and other preferred shareholders had argued Emmis used a succession of illegal, sham transactions
to amass two-thirds voting control of preferred shares late last year and early this year.

Reaching that threshold set the stage for the vote, which wiped out $34 million in unpaid dividends. Emmis CEO Jeff Smulyan
had pushed for the changes as a way to boost the company’s long-slumping common stock, which surged following the Sept.
4 vote.

Emmis isn’t out of the woods yet, because the plaintiffs still can press for damages in a full trial. However, Barker’s
48-page ruling was replete with language suggesting she doubts plaintiffs can prevail.

To understand why, it’s helpful to take a trip back to December 1985, when Canada’s Belzberg family was threatening
an assault on Arvin Industries Inc., then a powerful Columbus-based auto-parts maker.

In response, Arvin CEO James K. Baker called on his old friend Robert Garton, president pro tem of the Indiana Senate, for
help. As The Wall Street Journal later recounted, within weeks Garton had steered a tough anti-takeover measure,
drafted by Arvin’s own lawyers, through the General Assembly.

One of Arvin’s attorneys who helped craft the legislation was none other than Jim Strain, who, as a partner at Taft
Stettinius & Hollister LLP, now represents Emmis. So the company clearly grasped the legal landscape it was navigating
when it decided to get tough with preferred shareholders.

Ted Boehm, who served as an expert witness for Emmis in the lawsuit, knows the terrain as well. Boehm, a corporate lawyer
before serving as an Indiana Supreme Court justice from 1996 to 2010, also had a hand in drafting the Indiana Business Corporation
Law.

At the time, he said in his deposition for the Emmis suit, “there was considerable concern that the phenomenon of hostile
business takeovers that was prevalent was resulting in a severe depletion of locally based businesses in our state.”

The concern was so great, he said, that lawmakers wanted “to make Indiana as hospitable as it could to boards of directors’
governance of the company, and to make it as easy as possible for the board to accomplish what it determined to be in the
best interests of the corporation.”

So, asked David Campbell, an attorney with Bingham Greenebaum Doll LLP representing preferred shareholders, “If the
board of directors made a decision that it’s in the best interests of the corporation to entrench management and allow
management to take over economic control of the company at the expense of preferred shareholders, that’s fine?”

Boehm’s response: “Well, you put it in terms that are slightly pejorative, but ultimately I’d say the answer
is essentially yes.”

Indianapolis Business Journal reported Aug. 27 that some parties in the case were seeking the ouster of bankruptcy
Trustee Jim Knauer and his legal counsel — Faegre Baker Daniels LLP — over their failure to disclose a potential
conflict of interest at the outset of the 21-month-old case.

At issue was whether they should have disclosed their representation of San Francisco-based Wells Fargo, which was a so-called
participant in Fifth Third Bank’s loan to Eastern Livestock.

Faegre Baker Daniels and Knauer, a partner with Kroger Gardis & Regas LLP, argued disclosure was not necessary because
loan participants don’t count as creditors and have no legal rights in bankruptcy cases.

Lorch, in an Aug. 31 ruling, concluded removal was unwarranted and would delay efforts to recover money for creditors by
many months. But in his order rejecting Faegre Baker Daniels’ dismissal, he wrote that the brouhaha served as a lesson
“on the wisdom of a forthcoming and openhanded approach to disclosures that goes beyond the minimum required by the
law.”•
__________

Originally published in the Sept. 10, 2012, Indianapolis Business Journal.

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